Economics data, such as Gross Domestic Product, unemployment rates, inflation rates, the Current Account, etc, serve to show the status and progress of the Australian economy, and allows us to compare our situation with that of other countries.
As important as these figures are, they have their limitations. We have stoically stuck to the unemployment rate as the best picture of the labour market, and this measure avoids increasing concerns by real people about contractualization, inadequate work hours being available, declining real wages, employer fraud in retail and hospitality industries and the changes in society which are resulting in more people not even being counted.
Our economic system is based on data such as the above. The sum of this data tells us how our economy is going, and hence how our society is faring. And these figures should tell us about our society’s combined ‘utility’ (as economists call it) or ‘happiness’.
And yet these figures mask lots of unsatisfactory aspects. If you assemble 1,000 registered unemployed people and pay them to dig holes and then fill in those holes, our data would simply report this as economic activity by employed persons. And all looks good: GDP rises, the unemployment rate falls, the budget expenditure on unemployment benefits falls, personal taxes rise and the wages earned by those workers will benefit their families and some will also gravitate outwards as they spend those wages on goods and services. But is our society better off? The ‘holes in the ground’ are an extreme example of a futile activity, but let us consider another: advertising. Some advertising usefully provides information but much advertising is a waste. The recent spectacular defeat for President Trump’s health system changes allow us to ask the question “why does the USA spend 18 percent of its GDP on its health system, while Australia spends only 9 percent of its GDP to give a better and more comprehensive health service to its citizens. Part of that answer is the huge cost of advertising allowed in the US health system.
Pollution is another big area of weakness in economics data. If Country A satisfies its electricity demand by spending X percent of its GDP on green-sourced non-polluting electricity generation, but Country B spends the same X percent of its GDP on electricity generation from polluting coal-fired power-stations, the impact on each country’s GDP is the same, but the pollution implications (the externalities) from Country B’s power system has not been deducted from the contribution to its GDP. Indeed, it is worse: the extra medical costs made necessary in polluted Country B (higher incidence of heart-attacks and strokes, etc) are actually an addition to the GDP, even though it is only rectifying damage to society.
Well, economists, and others involved in public policy, have been adding additional data measures to try to arrive at other assessments of the ‘happiness’ of nations. It is clear that ‘happiness’ is not simply determined by household income and the unemployment rate, but rather should include the end-result of how a nation organizes itself in terms of its economic system, its social system and its political system.
One of these measures was released last week. It is the ‘Happiness Index’. It is a summation of a range of measures of economic, social and political markers. It combines hard economic data with other measures determined by polling. The aim is to assess how ‘happy’ a nation is.
The ‘Happiness Index’ is supported by the United Nations and the Organization of Economic Cooperation & Development. Its intention is to “to redefine the growth narrative to put people’s well-being at the centre of governments’ efforts”.
This year’s Index shows Norway to be the happiest country. Denmark, Iceland and Switzerland take positions 2 to 4. Australia is at number 9, the USA is at number 14 (and has been consistently falling), South Korea is at number 56, Philippines is at number 72 (but has been going up the ranking between 2005 and 2016), and China at 79 (which has shown no improvement for two decades, despite China’s economics advances). The unhappiest countries are in the Middle East and Africa.
Certainly there are many cautions to an Index of this sort. The quality of polling; the different cultural context; and how all the various measures are weighted and aggregated to arrive at a single index.
Well, a measure such as the ‘Happiness Index’ has a healthy democratic character, as country-wide measures are balanced by individual polling results. And figures such as national GDP tell us nothing about how the nation’s wealth and income are distributed, so a Gini Coefficient is added to the ‘Happiness Index’ to assess how wealth is distributed within each nation. Interestingly, ‘within nation’ variations in wealth was not a strong factor in the results of this Index, at least for wealthier countries.
The bottom-line of this ‘Happiness Index’ emphasises the two groups of important characteristics: economic wealth and non-economic aspects of society. Each of the top four countries rank highly on all the main factors found to support happiness: caring, freedom, generosity, honesty, health, income and good governance (including freedom from corruption).
Sure, the four leading countries are already wealthy. It might be relevant to say that these countries have done well economically and have ensured that the wealth has benefited all their citizens. Interestingly, Norway has used a Sovereign Wealth Fund to ensure that all its citizens, and its future citizens, will get the benefit of its oil production. The comparison with Australia is stark: Australia has had a massive minerals and gas development but Australia’s low-quality politicians did not introduced a Sovereign Wealth Fund and have not even been capable enough to tax the profits of the minerals and gas boom adequately.
The use of a “Happiness Index’ is a useful reminder that an economy is the sum total of its citizens. And that Economics is a social science and cannot escape from social issues or from psychology.
Mike B. Bradshaw has been an officer of the Treasury, Canberra, an investment banker, and a consultant in Europe, the USA and Asia. He now works on project financing.
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